Take a moment and consider these questions:

• What are the most important activities you do?
• What are the other activities that pull you from doing the most important activities?
• How could you do less of the least important activities?
• What paperwork, processes or requirements frustrate your customers?
• How could you redesign the customer experience so they could do less of the frustrating stuff?

Organizational complexity slowly creeps into a business and propagates. We don’t feel its tentacles slowing taking their grip before they start to strangle our best performance. The slow creep of complexity happens due to the typical growth pattern of organizations – as we get bigger, we add structures, defined roles and responsibilities, committees, strict processes and so on and so on. Before we know it, our days are taken up with low-value meetings, responding to emails and keeping compliant. We lose track of the highest strategic priorities, and because we’re so busy we get stuck in perpetual firefighting. What many leaders don’t realize is the tremendous performance surge that would come if all the low-value activities and noise that distract and soak up energy from people could be removed. Imagine the impact on performance if people were crystal clear on their top strategic priorities, focused their most productive part of the day on these priorities and had time to really lean into creative problem solving or building relationships with clients or whatever the priorities may be. Furthermore, imagine the customers’ enjoyment if painful bureaucratic processes were removed from their insurance journey. The opportunity to simplify work is huge, but it requires focus and effort. It takes commitment and perseverance to simplify work. It’s a lot easier to add complexity than it is to design a simplified solution that delivers the desired function. It requires intelligence and perseverance to reduce something complex and messy into something streamlined, prioritized, and simple. It’s much easier to add on another process, rule or detail than it is to design something simple that strips elements away to reveal critical elements that can serve to solve the root cause of a problem, enhance focus or accelerate understanding and buy-in. See also: The Insurance Lead Ecosystem   While "getting to simple" may take hard work and persistence, there are some core ways to help those in this important endeavor. My list for how to simplify looks like this:

1. Get clear on purpose
2. Organize
3. Reduce

Get Clear on Purpose There has to be a clear sense of what the bigger picture is so you can begin to remove the things that are not as useful. Without clarity on the strategy, mission or vision, you simply can’t begin to remove or reduce the things that are cluttering the business. When this clarity is missing in companies, people lose sight of or are unsure about what is most important and are left to blindly adhere to their manager’s instructions versus being able to think and act for themselves. A broader understanding of the strategic context has to be the first step in simplifying anything. Some questions that can help you to get clear on purpose include:

• What does success look like?
• What is the best outcome we could achieve?
• What is going to deliver the greatest value?

Organize Once a clear understanding of the strategic context has been established and key objectives are known, work can begin on organizing the chaos. A comprehensive picture of the current state, whether it be how work is done, content in a document or possible features for a product, should be obtained. When the laundry list or dump of current state information is collected, themes can be extracted and used to group and organize the minutiae. This enables sense to be made of the complexity as it creates a perception that the many have become fewer. Some questions to help with organizing chaos include:

• What are the themes?
• Can the themes be organized by relative strategic importance?
• Is there a way of assessing the degree of ease in removing or integrating non-core components?

See also: Insurance and Fourth Industrial Revolution   Reduce Once you have the groupings or themes and you have a clear idea of what you’re trying to achieve, the next intuitive step is to prioritize and reduce and remove those things that are not essential. This is a key step in simplifying, but it is also very challenging. It takes a lot of creative problem solving, brainstorming and design to reveal how something can be streamlined and simplified. Antoine de Saint-Exupéry, the famous French writer, said it nicely: “Perfection is reached not when there is nothing left to add, but when there is nothing left to take away.” Key questions that can be posed to help reduce something complex down its core include:

• What is most strategically important?
• What is least important and easiest to remove?
• How can non-core elements be redesigned or integrated?

The opportunity to take a step back and simplify the insurance industry is tremendous. It will take focus and determination but the potential return in innovation, productivity and customer satisfaction will be well worth it. I encourage you to take the first step.

Making healthcare available to your small business employees can be a daunting prospect. Procuring employee benefits can be costly and confusing to a non-expert in the field. However, it is essential to separate fact from fiction when considering providing your small business employees with the valuable gift of healthcare. Here are four commonly believed myths about healthcare for small businesses: My employees have medical issues; I probably can’t even afford to offer health insurance. For small group health plans, prices vary based on employee age, location and carrier. The health of your employees is not a determining factor. Small business fully insured plans are “guaranteed issue,” which means that qualified employees, regardless of health status, can get coverage. While employee benefits can be pricey, employers do not have to subsidize the entire amount. Depending on the budget, business owners can determine how much they are willing to contribute. Most employers contribute anywhere from 50% to 100% of the employee-only cost. There is a plethora of health plan options available for a wide range of budgets. See also: What SMBs Want in Group Insurance   Employee benefits are too hard to understand. A study recently found that 4% of Americans couldn’t correctly define the four key health insurance terms necessary for a basic knowledge of healthcare (deductible, copay, coinsurance, out-of-pocket maximum). Even if you’ve never offered employee benefits before, lack of familiarity with healthcare-related language shouldn’t stand in the way of making sure your company is covered. Resources are available to help demystify insurance for small business owners. Licensed brokers are available in a variety of formats to answer any questions you may have. There is also a multitude of explanatory collateral easily accessible online for free breaking down health insurance terminology and preparing small business owners to purchase health insurance plans for their employees. I can’t get insurance. I missed the open enrollment period. Small business owners can make employee benefits available to their employees all year. For the majority of states, the open enrollment period for 2019 was from Nov. 1 to Dec. 15, 2018, with some jurisdictions (like the District of Columbia and New York) extending their deadlines to the end of January. However, the open enrollment periods only apply to individual plans and Medicare, meaning that you are not bound by the open enrollment periods. Most insurance companies offer effective dates on the first or the 15th of every month for new benefits. I shouldn’t have to provide insurance to my employees if it isn’t legally required. Under the Affordable Care Act (ACA), employers that have fewer than 50 employees are not legally required to offer health insurance. Employees with 50 or more full-time employees may face a penalty for not providing coverage. However, even if your small business isn’t bound by law to offer employee health insurance, doing so benefits your employees and their families -- and your business. Employees are far more likely to choose and stay with a company if they are satisfied with the health benefits. In a recent AHIP study, 56% of American adults whose employers sponsored their health benefits reported that whether they liked their job’s health coverage was a key in deciding to stay at their current position, while 46% said health insurance was either the deciding factor or a positive influence in choosing their current position. Furthermore, employees who are insured are more productive while at work. See also: Digital Insurance 2.0: Benefits   No small business is too small to offer benefits. Under federal law, a small business must have at least one full-time equivalent employee other than the owner, spouse or family member to qualify as a small business and obtain health insurance. As long as your company qualifies as a small business under the ACA, you can provide your employees with healthcare. There’s often confusion surrounding small business health insurance that may prevent a small business owner from taking the crucial steps to make sure the team is covered. Shopping for and purchasing employee benefits has modernized and become easier over time thanks in great part to continuously improving technology. With all of this information and technology at your fingertips, you can feel confident in taking the next steps to provide health insurance to your employees.

It’s what you learn after you know it all that is really important. This often includes scar tissue gained when things don’t go as planned. In 2009, I was asked to present at a conference and was struggling to find a topic that would engage a bunch of folks smarter, more experienced and richer than me. I walked into a coffee shop in Baton Rouge and saw a magazine cover celebrating the 20th anniversary of the movie "Sex, Lies and Videotape." (The writer and director was Steven Soderbergh, a Baton Rouge native). That movie became the title and theme of my presentation. I included a slide for each of the terms in the title. The SEX slide involved five examples of clients of the financial services industry believing they got screwed when they’ve dealt with agents, brokers, advisers, etc.:

• “Sure your HO policy covers hurricanes, but your loss was from a levee breach.”
• “In today’s news, it was revealed that companies colluded to fix prices.”
• “You have a great major medical policy, BUT it doesn’t cover experimental treatment.”
• “Our universal life projections are very conservative; we’re using 12% returns, and right now our company is paying 14%.” (A real statement from 1983. A few years later, the returns were in the low single digits.)
• “The investment model mixes the most conservative stocks with bonds to protect your principal and still ensure a reasonable return on your investment.” (Yeah, but stuff happens.)

See also: ‘Organic Insurance’: Back to Basics   LIES included the following four statements:

• “We don’t sell products, we sell peace of mind.”
• “Don’t buy cheap – buy quality – buy stability, like Merrill.”
• “AIG is a stable insurance market.”
• “The merger of Travelers and Citicorp into Citigroup creates the financial services model for tomorrow.”

VIDEOTAPE included pictures of the following industry leaders:

• Bernie Madoff
• Hank Greenberg
• Allen Stanford

If you don’t know them, look ‘em up. We sell a “promise to pay.” Our luckiest clients never have a loss. Those who do suffer losses expect to be paid. Yet, they fear that they won’t be. You can be the best broker, agent or adviser in the industry, and you will still have claims that won’t be paid as you would like them to be. When such unfortunate outcomes occur – you may be painted with the same brush as those less than honorable characters who occupy a share of our world. Our industry should be at our best when client circumstances or at the worst. We have to be at work to pay claims when our clients are staying home to clean up their losses. I know we’re only human and can only do what we can do as time allows. Our problem is that the only claim that matters is the claim of the client at your desk or on your phone. And in times of disasters, our clients are under great stress, so they may not be as understanding as they were when they purchased our policies. Perhaps the most interesting lesson I learned following Hurricanes Rita and Katrina (2005) involved flood losses. Many agents explained that when we told our clients that their property policies would not cover flood (only a flood policy provides this protection), they would get angry. When we showed them a document THEY had signed acknowledging that they had "chosen to reject this coverage,” some got violent. See also: Insurance and Fourth Industrial Revolution   Some agents believed that most folks who did not have the coverage knew they didn’t but wanted to blame the mistake on the agent rather than on their own bad decision. When we showed them the document that covered our behinds and exposed theirs, we left them open for criticism from their partner, spouse or significant other. What we do is very important, so do it as well as possible and understand that the client screaming at you is hurting and that yelling at you is good for their soul (if not yours)! Peace.

Success in any industry, relative to your competition, depends hugely on the customer experience you provide. How good is the insurance industry at providing a good customer experience? The numbers aren’t encouraging. The latest EY Global Consumer Insurance Survey found: 14% - Consumers who are satisfied with communication received from insurers; 44% - Consumers who have had no interaction with their insurer in the last 18 months. These numbers could be attributed to a lot of reasons, not least of which is the human-digital disconnect that is a peculiarity exhibited by insurance. People used to buy directly from agents, who also helped them with claims, renewals and other issues that arose. Insurance buyers never directly contacted the insurer or expected any communication from it. But in the digital era, customers can research, compare and buy insurance online without talking to or meeting an agent, unless they need expert advice or clarification. According to a PwC report, 71% of consumers do some digital research (price comparison or social media) before purchasing insurance products. If you want to drive insurance sales in the digital era, there’s an easy way to leverage your physical agent network for increasing digital sales and revenue. See also: Underwriting, Marketing: Sync Up!   This is what I want to explain in this post - how to design and implement an integrated marketing strategy that your insurance agents can follow to generate leads online or offline, and get the commissions for resultant sales – also online or offline. 1. Social media marketing strategy for insurance agents This is a feature we developed for Metlife recently, that won us the collab 3.0 EMEA contest organized by LumenLab, Metlife’s insurtech innovation lab. You can see the demo video that explains how easily agents can be social, and share relevant content that ends up generating qualified online leads: https://www.youtube.com/watch?v=cJ03gtWQbAw Simply share an article you like with your prospects on social media. Make use of a plugin that shows them a lead form alongside the page. Your prospect fills in the form and requests a call back that goes to the agent who initiated the social share. These inbound leads are far more likely to convert than an outbound cold call. This feature in your marketing stack is a great motivator for agents to be social with your customers. Help them identify target groups of customers on different social networks and encourage agents to engage with and be a part of that circle of people. Inbound calls originating from referrals by known social connects convert a lot better than outbound cold calls or an agent sending a private message to unknown people who are not connected. The rest of the sales cycle, once the inbound call is added to your CRM, is the same as any agent-initiated sale. 2. Personalized micro-site for each agent Now you have a social connect who filled in a form expressing interest in a particular insurance product and talked to the agent who sent the form. The agent can now send a detailed proposal, which should include a link that takes the buyer to that agent’s microsite or page on the company website. It should showcase the agent’s bio and expertise and include links to the rest of the site for more information about the company and products. 3. Retarget leads based on interest and location Now you have a lead that has been engaged socially, then expressed an interest in a product and has been contacted by an agent on the phone or in person. An email proposal has been sent, which the insurance buyer is considering. See also: Does Your Structure Fit Your Strategy?   This is the right time to run paid retargeting ads - on Google Adwords, Facebook, LinkedIn and other media where your customers are likely to be. Show them a personalized ad based on the product, location and agent contacted. It keeps you in the buyer’s mind without having to call or email to follow up. Retargeting as the last stage of an integrated marketing strategy increases lead conversion rates by 27%. How to get started with an omnichannel strategy for agents As an insurer, you’ll need to collaborate with insurtech providers, which can help you define digital transformation for your business in a way that enables your agents to sell insurance instead of making them irrelevant. Be prepared to:

1. Open up your data sets to provide access through open APIs.
2. Reinvent business goals into customer goals.
3. Digitize existing manual processes to fulfill customer goals.

This should map your existing manual business processes into seamless customer-centric engagement across digital channels. Implement an omnichannel solution that can make use of your APIs to provide your agents access to customer and lead data at every point in the sales cycle.

“Antarctica meltdown could double sea level rise.” “The planet could become ungovernable.” Such headlines reflect the growing alarm over sea level rise. How worried should the insurance sector be? Sea level rise is one of the most consequential impacts of predicted global warming. Millions of people in the U.S. alone live in areas at risk of coastal flooding, with more people moving to vulnerable coasts each year. The alarm over sea level rise is not so much about the seven inches or so that global sea level has risen since 1900. The average yearly rate of global sea level rise is 3 millimeters -- the height of a stack of two pennies. Rather, the alarm is driven by predictions of sea level rise from human-caused global warming. There are concerns that Antarctic ice sheets could collapse into the ocean, increasing sea level in the 21st century by 5 feet or more. Are these extreme scenarios of 21st century sea level plausible? Or even possible? To put these alarming predictions into the context of scientific evidence, I have recently written an independent assessment report on Sea Level and Climate Change. The report draws the following conclusions: Is recent sea level rise unusual? At least in some regions, sea level was higher around 5,000 to 7,000 years ago. After several centuries of sea level decline following the Medieval Warm Period (about a thousand years ago), global sea levels began to rise in the mid 19th-century. Rates of global sea level rise between 1920 and 1950 were comparable with recent rates. Recent sea level rise is therefore within the range of natural sea level variability over the past several thousand years. See also: Role of Big Data in Fighting Climate Risk   Is recent sea level rise caused by human-caused global warming? The slow buildup of fossil fuel emissions before 1950 did not contribute significantly to 19th- and early 20th-century sea level rise. There is not yet any convincing evidence of a human fingerprint on global sea level rise, because of the large changes driven by natural variability. An increase in the rate of global sea level rise since 1995 is being caused by ice loss from Greenland. Greenland ice loss was larger during the 1930s, which was also associated with the warm phase of the Atlantic Ocean circulation pattern. How much is local sea level rise being influenced by the global sea level rise? The main causes of local sea level rise in many locations are local sinking of the land and ocean circulation patterns. Landfilling in coastal wetland areas and the withdrawal of groundwater have caused many of the worst local sea level rise problems. How much will sea level rise in the 21st century? Local sea level in many regions will continue to rise in the 21st century – independent of global climate change. The 2013 report from the United Nations Intergovernmental Panel on Climate Change predicted a likely range of sea level rise by the end of the 21st century to be from 10 inches to almost 3 feet, depending on the scenario for greenhouse gas emissions. The highest of these emissions scenarios, RCP8.5, more than doubles atmospheric CO2 concentrations from current values by the end of the 21st century, and is based on a number of extremely unlikely assumptions. Since the 2013 report, a number of worst-case scenarios for global sea level rise have been published by scientists. Estimates of the maximum possible global sea level rise by the end of the 21st century range from 5 to 10 feet, and even higher. These extreme values of sea level rise, driven by the extremely unlikely Representative Concentration Pathway RCP8.5 emissions scenario, are regarded as highly unlikely or even impossible. Nevertheless, these extreme, barely possible values of sea level rise are driving policies and local adaptation plans. These predictions of sea level rise depend on climate models to predict the correct amount of warming. However, there are reasons to think that the models are predicting too much warming:

• Observed warming for the past two decades is smaller than the average warming predicted by climate models.
• When compared with observations over the past 150 years, climate models produce too much warming in response to increasing atmospheric carbon dioxide.
• Climate model predictions only consider human-caused warming and neglect changes in natural climate processes: variations in the sun’s output, volcanic eruptions and long-term changes to ocean circulations. These natural processes are expected to have a cooling effect in the 21st century.

Predictions of 21st century sea level rise higher than 2 feet are increasingly weakly justified, even if the predicted amount of warming is correct. Predictions higher than 5 feet require a cascade of extremely unlikely to impossible events using overly simplistic models of poorly understood processes. See also: Effects of Weather Are Gathering Force   In many of the most vulnerable locations, local sea level rise is dominated by vertical land motion caused by natural geologic processes or by coastal land use and engineering practices. For the next 30 years, we can expect the rates of global sea level rise to be similar to what we have seen in recent decades. An additional sea level rise of 1 to 2 feet over a century can be a relatively minor problem if it is managed appropriately.

The future of AI as a threat to our jobs is a popular topic. Here is a book to help you respond. Unlike so much that is written on this topic, Tony Boobier‘s latest book focuses on a positive response. It also investigates the implications of AI at a deeper level than most analysis. While many books have been written that focus on explaining AI, or focusing on the technology, this book focuses on jobs. Tony includes extensive research and careful analysis. He takes us through most sectors, to understand opportunities and threats. Let me explain why Tony’s book, “Advanced Analytics & AI“ is worth reading, both for your role now and as future career advice. Never mind understanding AI; do you understand work? Tony is a man who has read widely. His polymath nature really shines through the start of this book. The subtitle hints at the breadth he explores, “Impact, Implementation & The Future of Work.“ Rather than just focusing on AI, Tony usefully starts by exploring the history of work. From slavery to the “flat white economy,“ he engagingly muses on both our need for work and how we recognize and value our abilities. This mindset guides his later exploration. He goes on to provide some useful definitions of analytics and AI, helpfully calling out the lack of clarity and misuse of both terms that abounds. From business intelligence to advanced analytics and prescriptive analytics, plus rules-based systems and cognitive analytics, Tony manages to understand the purist distinctions and be pragmatic about what matters. Going on to define AI, with particular reference to the Turing test, Tony briefly walks us through the history of AI development. As someone who worked in AI before the “AI winter,“ I recognize many of his examples and why the recent renaissance might be different. Learning from AI in leading-edge industries His list of leading-edge industries is always going to be controversial. But, given the investments that I have seen, I think there’s a good case for his selection. It includes financial services, automobiles, media/entertainment/telco and retail. This chapter begins what is the heart of this book. For each sector (e.g. insurance), Tony outlines the relevance of AI and how it might replace some of the work currently done by humans. His analysis is pragmatic. He points out challenges, difficulties and where either consumers may not accept technology or where the risks are too great. Tony does identify useful opportunities for AI innovation. He also suggests where those working in that sector can still add value. The detail provided on so many diverse roles is particularly impressive. This is a well-researched book and a result of many years working in some of these sectors. Tony is also pragmatic in his identification of applications. From robo-advice to automated cars or supply chains, he calls out real progress and work still to be done. AI progress within second-mover industries Given a media focus on AI within leading-edge industries (e.g. autonomous vehicles), it is interesting to look elsewhere. Reading through the previous chapter, it became obvious that a number of AI innovations should be transferable. In this chapter, Tony reviews those sectors that are beginning to apply pilots based on the above successes. From construction to utilities, public sector and agriculture, he challenges us to see how widespread adoption of AI could transform these jobs. From smart homes to connected infrastructure, predictive policing to automated harvesting, Tony presents a picture of not just a threat to jobs, but a different way of working, that has subtly different challenges for each sector. His challenges to previously accepted hierarchies and divisions between sectors are also important. With automated delivery of supply chains, previously separate industries could merge in new ways, one of many indications of the need for creative thinking by leaders. The future of AI and its impact on professions My own experience of seeking to get offshoring of analytics to work has taught me to be skeptical of hype. At the time, many commentators predicted the offshoring of white collar jobs. This proved limited, as the model ended up only working well for well-prescribed, repeatable processes. We have also been this way before with AI. As Tony mentions, the hey day of expert systems in the 1990s predicted at least decision support for many professional roles, hopes that withered during the AI winter. So, I read Tony’s chapter on the impact of AI on professional roles with some skepticism. That said, he does make a convincing case across a much wider range of professions than many would consider, not just to doctors, teachers and lawyers. Tony highlights the implications for AI delivering management, finance, engineering and even creative roles. At the very least, Tony makes the case for opportunities and uncertainty – as a challenge for managers and entrepreneurs in this space. The role AI could play is still only starting to be defined for most professions, and planning would help. Let’s stop pretending data science and AI are risk-free Apart from extreme predictions of the end of humanity in robot wars, many articles suggest the rise of AI will be smooth. One might think it was risk-free and in line with the continual improvement of the human condition, even though so much that has gone wrong already should cause us to be circumspect. Tony rightly includes a chapter summarizing these risks, from system failures to data privacy, employee error to reputational risk. Considering the role of the maturing regulation technology (regtech) sector, it is clear that does not provide all the answers. Risk management, as for other sectors, needs a balance to be struck between automated efficiency and human judgment. Prepare for your career in the future of AI The most useful contribution of this book to society is the way that Tony ends it. In his final four chapters, Tony reviews:

• Potential AI implementation road maps
• New business models (made possible by AI)
• Coping with the future (societal considerations)
• Strategies for personal reinvention

That final chapter should be required reading for all those who will still be working in 20 years. Tony challenges readers to reflect on their motivations and needs, not just popular options. As Tony encourages, now is not the time for humanity to fade away into a passive life of leisure. This is a time for careful consideration and design, planning how a powerful technology can serve humanity and avoid many pitfalls. How are you preparing for the way AI will change your work? I hope you found that book review useful, that it provokes your thinking about how AI will change your career. From insurtech to jobs to avoid, Tony gives plenty of food for thought. It is also well worth checking his appendices, as resources for data. They cover implementation flowcharts, lists of jobs most affected by AI and professional bodies to advise you. If you want to buy a copy of this book, you can get it here.

Hurricane Andrew’s devastation and lasting financial impact created a need for an alternate means to access capital and transfer risk. Enter the Bermuda market, and, on its heels, the insurance-linked securities (ILS) market. The latter has been growing steadily ever since the mid-1990s. Fast forward. and some traditional reinsurers now offer ILS fund management. Other reinsurers have purchased prominent ILS fund managers, as was most evident with the well-publicized Nephila acquisition by global re/insurance giant Markel. This recent mainstreaming had brought about all sorts of acknowledgment. However, while everyone was patting each other on the back, various catastrophes were occurring on a global scale. From earthquakes, floods and typhoons in Asia to hurricanes and fires in North America, the industry incurred increasing losses in 2018. Coupled with the 2017 loss creep, these losses have affected several ILS vehicles, and investors/fund managers are rethinking their respective capital allocation strategies in the coming renewal season. ILS plays an important role in providing efficient capital to insurers and reinsurers (through retrocession) that sponsor the deals, but it is not without risk. Recent developments in the marketplace have the collateralized funds space facing headwinds. For these important investment vehicles to continue as beneficial components of ceded reinsurance programs or investor portfolios, some things need to change. Perhaps the greatest contribution from ILS has been its ability to smooth pricing volatility in the regular reinsurance underwriting cycle. Every time there has been a large storm, or series of storms, reinsurers respond by raising prices in a phenomenon known as “payback.” This cycle went on for many years until the recent ILS “coming of age.” With an abundance of capital, reinsurers are pressured to keep their rates down to compete for shares of a given deal. Reinsurers are also able to take advantage of this downward pressure in pricing with their own reinsurance known as retrocession. Along with helping insurers/reinsurers access capital for additional capacity, ILS are a means for institutional investors to diversify their portfolios to non-correlated risk. What this means is that rather than their funds being tied to financial markets, where they’re subject to things like credit risk, the funds are tied to triggers from catastrophic natural disaster events. In addition to this diversification, the returns also make ILS an attractive investment to the sophisticated institutional investor. In the absence of considerable aggregate loss totals, these transactions are a “win win” for all parties involved. Followers of reinsurance industry news in 2018 know there’s no shortage of praise directed toward the ILS space. But a shift in attitudes occurred very recently, months or even weeks ago. The industry was so impressed with the resilience of the ILS market following the 2017 HIM losses (Harvey, Irma and Maria) and the “reload” of capital that followed. However, this “reload” of capital occurred prior to realizing the additional effects of the 2017 loss creep from the HIM storms. Loss creep occurs when the final loss amounts from an event aren’t known and the reserves must be increased due to changes in projections. Along with the 2017 loss creep, 2018 shaped up to be another year of catastrophic losses. The California wildfires, Typhoons Jebi and Trami in Japan and Hurricanes Florence and Michael in the southeastern U.S. all added to the problem seen in collateralized reinsurance deals. In a collateralized reinsurance transaction, collateral is put up by investors to cover the full limit of the reinsurance contract. As a result of the catastrophes piling up, much of the collateral on the deals has become “trapped.” While the final loss number is being determined, the trapped funds cannot be moved or re-allocated into new deals. We’re seeing that this has led to some fund managers having difficulty renewing core components of their portfolios. This could lead to reinsurers being more aggressive to take back their market share with traditional capital. Perhaps this is just a short-term correction, but one thing is for sure: The trapped collateral issue needs to be solved sooner rather than later. See also: Fixing the Economics of Securities Defense These recent changes in the ILS marketplace have only affected a few funds and strategies. According to market intelligence sources, most are renewing as planned. However, the changes highlight the potential for disaster down the road if nothing is done to correct these issues. In my mind, there is an excellent opportunity for sponsoring insurers and reinsurers to collaborate with the investor base and fund managers. Collaboration could lead to outcomes that better provide sponsoring organizations with the efficient capital/collateral that they’ve come to rely on while simultaneously providing investors with greater flexibility in the deployment of their capital. Insurers, reinsurers and institutional investors have demonstrated their needs for ILS, and it’s up to all parties involved to continually improve the space. Insurance-linked securities are the present and future of risk transfer, but recently their vulnerabilities are being exposed. The negative effects of trapped collateral threaten to disrupt more funds if enough capital is tied up. Thankfully, ILS experts are reportedly working diligently to solve this problem. ILS provides sponsoring insurers and reinsurers an efficient source of capital while providing diversification for institutional investors. I’m inclined to believe that, for these reasons, ILS arrangements are here to stay in some way, shape or form. Throughout this piece, I’ve put myself at the risk of oversimplifying a very complex subject. There are different types of ILS vehicles, fund strategies and investor types currently in existence. In fact, you’ll notice that I didn’t even touch on the potential impact of rising interest rates; that’s a discussion for another time. My hope is that these thoughts will provide additional dialogue on the headwinds facing the ILS space. These difficult times are a test and an opportunity for improvement that could lead to a more efficient, capital-rich market.

Step 1 — Decide on the specific problems you are trying to solve within your organization. Carriers have a unique opportunity during this time of insurtechs. There are many great insurtechs out there that are solving problems for the industry. However, for a carrier to take true advantage of this opportunity, it first needs to identify specific problems within the organization that need to be solved. It doesn’t make sense to find insurtechs in the marketplace and then look to see how they fit within your organization. Both the insurtech's and carrier's time will be better managed if you first decide on specific challenges your organization is looking to attack. For example, have you decided that your organization needs to improve the customer experience during the claims process? Then seek out an insurtech that solves that specific problem. Don’t look to speak with insurtech companies just because insurtech is the hot topic right now. Match the insurtech companies to your issues, and both companies will benefit. Working with insurtechs will take a shift in the thinking and paradigms within the organization. Step 2 — Have a separate vendor procurement process for insurtechs. You must put yourself in the insurtech’s shoes for a moment. Have you ever gone through your company’s vendor procurement process? Is it a nine-month process for even the most sophisticated companies with unlimited resources and attorneys on staff? Here is what I can tell you as a founder and CEO of an insurtech company, Benekiva. We simply cannot spend the time or the resources to go through an extensive vendor procurement process. Don’t get me wrong. I am not suggesting that you skip the due diligence process on these insurtech companies. I am suggesting that you need to have a separate procurement process that is a bit friendlier if you want to work with these companies. See also: How to Partner With Insurtechs   Step 3 — Who is on your innovation team? We get the opportunity to speak at events all over the U.S. We often get asked, “How can carriers be more innovative?” Here are a couple ways:

1. Carriers can engage and work with insurtechs. However, before the carriers engage startups, the issues they need to solve are the long sales cycles and the vendor procurement process discussed above. Once carriers have tackled these issues, working with insurtechs can immediately inject some innovation into the carriers.
2. You can create an internal innovation team. This one is a bit more difficult. The question you need to ask yourself is, Who is on your innovation team? Many times, the people on these innovation teams are the folks who resist change. Often, we see the “quarter-century clubbers” on these teams. The quarter-century clubbers are the folks who have been in the organization for 20-25 years or longer. Don’t get me wrong, some of these folks can add value to the innovation team. However, some of these people challenge innovation. When you ask them, “Why do we do this process in this way?” the common response is, “That’s how we have done it since I have been with the company.” There lies the problem! You can’t expect to be innovative if you are not willing to have an open mind to a newer and better way.

My suggestion – add people to the innovation team who will challenge the status quo and who will interrogate the answer of “that’s how we have always done it” Step 4 — You must take a little risk. This is an easy one. Carriers need to take a little risk. WOW! There it is, I said it… Insurance carriers need to take a little risk in working with insurtech companies. I understand that carriers are risk-averse. However, I also understand that policyholders and beneficiaries are demanding a better customer experience out of carriers to earn their business. Startups are fast and nimble; most carriers are not. Carriers have a need and the capital; startups have the desire to succeed and can execute. When you can combine a carrier's needs and capital with an insurtech’s desire and execution, innovation WILL occur! See also: How to Collaborate With Insurtechs   Here is a challenge — Have you ever experienced your company's various processes? This would be a great exercise for many executives. Do not stage these experiences. Rather, be completely anonymous and go through your company's processes. Go through the processes on multiple devices. Be honest with yourself and ask – does this process suck? If the answer is yes at any point in your process, you need a better process. This is an opportunity to innovate…

In May 2018, insurance company Aflac revealed that it had been the target of a successful cyberattack that led to a data breach and the possible exposure of customers’ sensitive personal information. The attack occurred via a hack of independent contractors’ email accounts. Similarly, in 2014, Anthem, a health insurer, experienced the largest theft of customer data from a U.S. healthcare institution in history to that date. This hack was executed using a phishing attack, through which the attackers gained access to valuable customer data. As a result of this hack, close to 79 million customers had their sensitive data, like Social Security numbers and addresses, jeopardized. The Anthem cyberattack is just one of a number of attacks targeted toward health insurers in recent years. Insurance companies, like other financial services organizations, are, of course, a primary target for cyberattacks. Adversaries are looking to profit from their attacks, so hacking insurance companies can serve that end. Cyberattacks targeted toward this industry have stolen customer data and used that data to commit profitable fraud schemes. Beyond concerns about cost – which, of course, are significant – insurance companies have added worries when it comes to digital security. Given the extremely sensitive nature of data collected and used by insurance companies, cybersecurity measures are particularly important for these firms, especially those looking to gain and keep trust with consumers. In addition, regulations on the industry require a greater level of protection than many other industries to remain compliant. As a result, cybersecurity has become an essential part of doing business in the insurance industry. Across the industry, firms are stepping up their game when it comes to cybersecurity. These companies are deploying more and more resources toward cutting-edge technologies like machine learning, artificial intelligence and orchestration. See also: Quest for Reliable Cyber Security  An important question to consider, though, is to what strategic ends are these cutting-edge technologies being put. Are they simply bolstering traditional methods of cybersecurity, or are they being used for methods of cybersecurity that are innovative, instead of simply faster or more efficient versions of the same product? The Incident Response Approach to Cybersecurity Traditional cybersecurity approaches are focused on reporting about intrusions, in what is known as an “incident response.” What this means is that an adversary – commonly referred to as a “hacker” – finds some way to gain access to a target and compromises it. The target can be accessed through vulnerabilities in web frameworks, internet browsers or internet infrastructure such as routers and modems. Regardless of the method used, once an attacker is discovered, the forensics about the attack, including basic information known as Indicators of Compromise (IOCs) like IP addresses, domain names or malware hashes, are shared across the cybersecurity community. These IOCs are then used broadly to thwart future attacks. The problems with this approach are twofold: Like a canary in a coal mine, someone has to be a victim first so that IOCs can be derived and shared with others; additionally, blocking IOCs has a very short half-life. Most adversaries subscribe to the very feeds that companies subscribe to to quickly learn if they have been exposed. All an adversary has to do is come from a new IP address or recompile its malware so that it has a new hash value (both of which are extremely trivial) and its attacks will sail through defenses that depend on IOCs. This after-the-fact methodology consumes a lot of resources and generates a lot of seemingly valuable metrics, but it is ultimately flawed. Cybersecurity teams and adversaries are trapped in an endless loop where the adversary always has the advantage. As hackers repeatedly gain access to valuable systems and data using the same methods, cybersecurity teams continue to chase after them to secure compromised systems. While a great deal of effort is put toward understanding as much as possible about the adversary and his methods, only a small amount of that understanding is used, and only to perform the very basic actions described above. Adversaries continue to play chess, strategizing about how to slip past cybersecurity teams unnoticed, while those same teams act as though the game is more like tic-tac-toe. Very little cybersecurity effort is put toward addressing the methods used by adversaries; instead, security teams are locked in a pattern of waiting for inevitable attacks, trying to minimize the damage they cause, ensuring that remediation occurs as quickly as possible and blocking only exactly identical attacks. Planning for the Future of Cybersecurity As is readily apparent, these current, standard methods of cybersecurity are fundamentally flawed. Incident response only helps prevent attacks that exactly replicate past ones. To stem the flow of cyberattacks and to truly protect against them, the cybersecurity industry needs to embrace a paradigm shift. Rather than rely solely on the incident response and recovery methods that have been used for many years, a more sophisticated approach is needed. It will need to be designed to successfully recognize adversary methodology (and all the manners in which an adversary attempts to obfuscate its methodology) before attacks occur and at a meaningful scale. This kind of approach, when paired with incident response tactics, could provide true security to vulnerable, critical networks. If the cybersecurity world wants to halt dangerous, costly attacks, there is a great need to shift attention toward prevention. Instead of seeking discrete, static IoCs based solely on what has already occurred, cybersecurity analysts can instead use the intelligence they have derived about adversaries’ methodologies – commonly referred to as tactics, techniques and procedures (TTP).  From these TTPs, analysts can identify the general form and components of an adversary campaign. In addition, they can determine abstract indicators like how the adversary is attempting to hide his actions.  A cybersecurity tool would be able to recognize possible adversary TTPs and indicators that describe a threat (or threatening behavior) in general terms. The system would then act on any traffic that met this pattern before it reaches inside a network, as the attack occurs, and do so in a way invisible to adversaries. Using this basic model, a cybersecurity tool could truly prevent common exploits before they were executed and could even predict and protect against future, not-yet-seen exploits. In addition, this prevention plus response method of cybersecurity enables teams to truly take advantage of cutting-edge technologies in ways that change the game, instead of simply adding speed (and cost). See also: Best Practices in Cyber Security   A TTP-based cybersecurity tool would work in concert with existing incident response, internally focused cybersecurity efforts, adding a layer of prevention over the top of this vital but flawed process. With these two methods employed hand-in-hand, cybersecurity teams can make headway in reducing the number of attacks and can more quickly and productively respond to attacks that do prove effective.

My favorite video in a very long time is this one, of a man staging a slip-and-fall fraud at his workplace—while a security camera records every moment. He says in the article, "I didn't do it. It was a mistake." But huh? The video shows him dumping ice on the floor and lying down next to it, after which he filed an insurance claim for his "injuries." 

This sort of video is good news for insurers, which are always fighting fraud, which are trying to prevent accidents and which have a new friend: increasingly ubiquitous cameras and sensors. 

When a 19-year-old allegedly held up a bank in Austin in December, he quickly found himself caught up in such a digital web. Security cameras spotted him climbing on a rental scooter to make his getaway. The scooter, of course, has a GPS sensor in it so the company can find it at night and recharge it, so authorities knew where the scooter went next. The scooter also has to be able to charge the user, so the authorities knew who had taken it. They then checked his cellphone, and, sure enough, he was near the bank at the time of the robbery. 

Who needs Columbo when you have all those tools?

Car thefts have dropped by a third since 2000 in the U.S., partly because of new anti-theft devices but also partly because so many cars now have tracking devices that let stolen cars be found immediately. Car insurers now have access to sensor data that they can use to challenge the narratives of potential fraudsters, and cameras are increasingly capturing video of accidents on roads. 

In the home, smart doorbells see who is there and may scare off intruders, or at least discourage  them from taking packages left outside. Wearables and electronic assistants like the Amazon Echo and Google Home have been used to unravel alibis. ("No, sir, your wife was not still alive at such-and-such a time, as you claim.") Such sensors will surely be resources for insurers.

Big data and artificial intelligence will also help both police and insurers spot the sorts of criminal rings that stage accidents and thefts to collect major settlements. 

Now, the law of unintended consequences is still in force, so the spread of cameras and sensors won't play out quite as any of us suspect. In a book published five years ago, Chunka Mui and I posited that the spread of cameras could drive a lot of innovation, and we were right—but not quite. For instance, we said that police would routinely wear body cams, and they do. But the cameras haven't proved to be quite as important as evidence as we expected they'd be—context and framing turn out to be important enough that juries sometimes dismiss what they see on video. The cameras also haven't changed police behavior as much as we had expected.

Still, we're clearly headed in the right direction with cameras and sensors, limited just by our inventiveness in deploying them.

We might even be as successful in heading off problems as a friend of mine was many years ago when he was the victim of the world's briefest carjacking. He was living in a dodgy neighborhood in Washington, D.C., as a young editor in the Wall Street Journal bureau there. He was pursuing a dream of becoming a licensed auto mechanic (the only student with a degree from an Ivy League university, or from the Sorbonne, that the school had ever seen) and had an old car that he kept around as a challenge. At a stoplight, a guy came up to the driver's window, pointed a gun at my friend and ordered him out of the car. The thief engaged the clutch, and the car lurched forward and stalled. The thief tried again. Same result. A third time. Still no go. My friend, knowing just how dodgy his clutch was, was still standing nearby as the thief jumped out of the car, threw the keys at my friend and ran off.

May all our problems be resolved so quickly.

Paul Carroll
Editor-in-Chief